Politicians trapped by public opinion into into crowd-pleasing attacks on banks, says BBA head

Politicians know that bank regulation is too tough but are trapped by public opinion into crowd-pleasing attacks on the industry, the head of Britain’s banking lobby claimed this weekend.

Anthony Browne, chief executive of the British Bankers’ Association, told Financial Mail: ‘Politicians want to restore confidence and trust in the banking system and all mainstream politicians want London to thrive as a financial centre. But they are acutely aware of public opinion.’

He added: ‘A lot of them admit to me behind closed doors that there is an element of over-regulation. It’s an easy way for them to get applause on Question Time.’

Clampdown: The banking lobby says that the threat of change to regulation could hit lenders' capital-raising ability

The comments come as the banking
industry digests the latest broadside from MPs – a report from the
Parliamentary Commission on Banking Standards that called for the
Government to toughen up its planned clampdown.

The
report by the commission, headed by Andrew Tyrie MP, warned that plans
to ringfence retail banks to protect them from riskier investment
banking operations needed to be backed by legal powers to force a formal
break-up in case bankers tried to dodge the rules.

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It
also proposed a possible ban on banks trading on their own account as
well as more onerous obligations on bank directors to enforce a
ring-fence.

Browne
warned that the threat of change to regulation created uncertainty and
would undermine the ability of banks to raise capital from investors.

‘The
bank of England’s Financial Policy Committee keeps telling banks to
raise money by issuing shares but they can’t do that when there is a
continual threat of break-up,’ he said.

He said there needed to be more recognition of the changes that had taken place in banking.

‘My
message to politicians is that it is fair to criticise the banks, but
do it in a constructive way. Reward good behaviour, praise banks for it
and that will help restore public confidence,’ he said.

Browne said the total level of bonuses has gone down by 70 or 80 per cent, which he described as a ‘dramatic’ shift.

He also claimed that 90 per cent of the board members of banks had changed since 2007. ‘It is not the same gang,’ he added.

Chancellor George Osborne is expected to reject the main demands of the latest report.

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An all-party parliamentary group of MPs has called on the Government to
freeze bank charges on interest rate swaps being levied on small
businesses, writes Helen Loveless.

The
scandal of businesses that were mis-sold swaps – interest rate hedging
products – when taking out commercial mortgages has been spiralling.

Most
swaps allowed firms to fix their rate to protect against any sharp
rises. However, many firms were not told their rates would remain fixed
even if the base rate fell – which it did, to a record low of 0.5 per
cent.